The Economic Confidential and the Nigeria Extractive Industries Transparency Initiative (NEITI) recently revealed that some states in the country will face financial distress without the monthly allocation from the Federal Government. They also disclosed that more states might not be able to fund their 2019 budgets.
The Economic Confidential had in its Annual States Viability Index (ASVI) report for 2018 released last week, disclosed that at least 17 out of the 36 states are financially unhealthy as their Internally Generated Revenues (IGR) were less than 10 per cent of their receipts from the Federation Accounts Allocations Committee (FAAC) in the same period under review. This is grossly inadequate to keep them afloat.
In the same vein, the report by NEITI revealed that 28 states would be unable to fund their current budgets from revenues realised in 2017 and 2018. According to NEITI, only eight states have the financial capacity to fund their budgets. The states are Lagos, Delta, Enugu, Kaduna, Yobe, Kano, Nasarawa and Rivers. The rest, according to the report, do not have the financial muscle to fund their budgets, even with the monthly disbursements from FAAC.
The grim picture painted by the Economic Confidential and NEITI is worrisome. Specifically, the index computed by the Economic Intelligence report showed that the total IGR of the 36 states of the Federation was N1.1trillion, compared to N931billion in 2017, an increase of N172billion. However, this amount is far below what the states require to pay workers’ salaries and pensions of retirees. Not surprising, Lagos State came top on the table with the highest IGR of N382billion in 2018, compared to N260billion from FAAC.
This is higher than the IGRs of 30 states combined. Rivers state came a distant second, followed by Ogun state, Delta, Kwara and Edo states, in that order.
Of all the 19 states in the Northern region of the country, only three states – Kaduna, Kano and Kwara, had IGR above 20 per cent in comparison to their respective allocations from the Federation Account. Also, only seven states in the South recorded over 20 per cent IGR in 2018. The states are Lagos, Ogun, Rivers, Edo, Enugu, Delta and Ondo. Four states from the South with the poorest IGR of less than 10 per cent compared to their FAAC in 2018 are Akwa, Ekiti, Ebonyi and Bayelsa, those in the North include Nasarawa, Gombe, Zamfara, Benue, Adamawa, Bauchi, Jigawa, Taraba, Niger, Yobe, Borno, Katsina and Kebbi.
It is worrisome that 28 states may not fund their current budgets and 17 states rated economically and financially insolvent. The troubling situation should make the state governors look inwards and increase their IGR.
Without enhanced IGR, it will be difficult for many states to implement the N30,000 new national minimum wage, estimated to gulp N1trillion. While an upward review of the revenue sharing formula in favour of the states has become imperative, governors of the affected states should creatively shore up their revenues.
Recent figures from the National Bureau of Statistics (NBS) also brought to the fore the acute financial situation of most states as a result of dwindling revenues from oil, which has reflected on the steady decline in the FAAC disbursements in the last two years. We recall that federal allocations declined by over 50 per cent between 2017 and 2018.
No doubt, the era of overdependence on federal allocation may be coming to an end, and states that depend on the monthly allocation from Abuja may be living on borrowed times. Therefore, the governors should do something now to increase their revenue base.
This is the time to revisit the issue of fiscal federalism through meaningful restructuring that will allow the states control the natural resources in their domains. Currently, the 1999 Nigerian Constitution vests in the Federal Government the exclusive rights of minerals in all the states of the Federation. It is time to alter that arrangement in favour of the states. More importantly, state governors should give diversification a preeminent position in their economic agenda.
The current dire financial situation of most states can be reversed if the governors grow their revenues.